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With foreign investor interest, port sector prepares for M&A spree

Wilson Sons, CLI, Porto Sudeste, Santos Brasil among possible assets for sale

26/08/2024

Ports in Brazil, such as Santos, have a strong correlation with agribusiness and the oil and gas sector — Foto: Divulgação

Ports in Brazil, such as Santos, have a strong correlation with agribusiness and the oil and gas sector — Foto: Divulgação

The Brazilian port sector is heading towards a new wave of mergers and acquisitions (M&A), as the interest of foreign investors in the assets grows, amid accelerated activity in the segment. Current negotiations total at least R$7 billion, considering only the controlling shareholders’ stake in the publicly traded companies for sale. Sources involved in the deals say the interest can be explained by the link of ports, agribusiness, and the oil and gas sector, as well as large global operators seeking consolidation.

At the moment, at least four assets are for sale, according to sources: Wilson Sons, CLI (Corredor Logística e Infraestrutura), Porto Sudeste, and Santos Brasil. “We see a movement from global operators,” said a source who spoke on condition of anonymity. According to the source, shipowners are positioned to face market consolidation. In Brazil, the focus is on the Southeast region. According to the source, these large operators are leading the current trend, as they direct global product flows.

The sale of Wilson Sons’s control to the U.S. infrastructure fund I Squared is expected to be the first deal in the sector, according to people familiar with the matter. The sale of Ocean Wilsons’ stake in Wilson Sons is an old process in the market, but only recently it has accelerated. The company boasts a market capitalization of R$7.3 billion on the stock exchange, according to Valor Data, based on the closing of August 22. The parent company holds a 56.5% stake.

The asset was put on the block in 2011 but the operation did not take off. The main challenge at that time was pricing, combined with the difficulty of finding a group with interest in all of the company’s assets. The company operates successful but relatively small container terminals, in addition to tugboat services, offshore assets, and logistics centers. BTG Pactual is advising the sellers in the process. Bank of America and Santander work for I Squared, according to sources.

The asset manager, which has around $40 billion in infrastructure assets under management worldwide, opened an office in Brazil in mid-2023 and has since announced the acquisition of 49% of the distributed generation company Órigo Energia.

The process for the sale of CLI is also being discussed, Valor found. The current owners—Australia-based Macquarie Asset Management and asset manager IG4 Capital—engaged Citi in the process, according to sources speaking on condition of anonymity.

A person familiar with the matter said the process is undergoing initial studies and potential interested parties have not yet been identified. IG4’s exit is seen as natural, as the private equity manager entered the business at the end of 2020. Macquarie, which bought a stake in the company in 2022 and has a longer-term vision, would not necessarily exit the business, sources say. CLI operates grain terminals in the ports of Itaqui (Maranhão) and Santos (São Paulo)—the latter, in partnership with Rumo, which has 20%.

Mubadala is also seeking a buyer for Porto Sudeste, according to sources. UBS BB and Goldman Sachs were hired to advise on the deal, people familiar with the matter say.

“This type of activity in Brazil will continue to be active and most ports have exposure to commodities—grain or liquids (oil)—which remains accelerated,” one source told Valor. According to this person, the sector will require massive investment, leading to more growth, which has attracted global interest. In addition to large infrastructure funds, the sector has also been closely watched by trading companies. The fact that port revenues are pegged to the dollar—even if indirectly—has also helped increase foreign investors’ interest in the assets.

A source says Chinese interest has attracted attention, including the giant China Merchants Port.

Another port asset that could be a target for acquisition is Santos Brasil, which operates container terminals and, more recently, liquid bulk as well. The company is a mature investment by Opportunity, its main controlling shareholder. In recent years, Maersk and MSC, shipping groups operating container terminals in Santos with plans to expand operations in the port, have been identified as the main interested parties. However, sources say there are no conversations at the moment.

People familiar with the matter say the company’s price was too high for negotiation in recent months, amidst accelerated activity and queues in Santos. However, the scenario could change if the project for a new container terminal in Santos, called STS10, advances. After a statement by Minister of Ports and Airports Silvio Costa Filho that the bidding could be carried out in 2025, Santos Brasil shares plummeted 8.9% on Thursday (22) and closed the trading session at R$12.62.

In any case, sources say the process has cooled down. Furthermore, the discussion about STS10 hinges on a series of decisions, and there may be positive factors for the company, including a possible terminal expansion, which is also on the government’s agenda.

The port of Itapoá is also expected to undergo a future M&A deal, sources say. It’s controlled by Portinvest, a vehicle formed by the Battistella group and asset manager BRZ. Maersk is a minority shareholder with 30% of the company. People close to the group, however, deny interest in selling the asset. One of them argues that the company is undergoing an expansion phase and it would not be the time for the current partners to exit.

Rafael Schwind, from law firm Justen Pereira, points out that the interest of foreigners in the port sector in Brazil is nothing new and has been noticed over the last decade. “Today we see this interest once again, whether in auctions or in acquiring control,” he said. Mr. Schwind also emphasizes that foreign investors have little presence in this sector and that, as a result, there is room for increasing participation.

Casemiro Tercio, a port sector specialist at 4 Infra, points out that foreign investor interest also occurs among agribusiness groups, for example, seeking verticalization. “The verticalization of agribusiness would eliminate transaction costs,” he points out. On the side of financial investors, such as funds, the focus is on mature assets, the expert says. In the container segment, he explains, protection is behind companies’ interests. “These companies seek assets to protect their business, which is shipment,” he says.

Marcos Pinto, managing partner at A&M Infra, agrees that shipping groups should increasingly seek investment in ports, especially with the arrival of large ships in the country.

Wilson Sons, I Squared, IG4, Macquarie, Mubadala, Opportunity, BRZ, and China Merchants declined to comment.

*Por Fernanda Guimarães, Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Foreign investor maintains a wait-and-see approach in Brazil

More dismayed than optimistic tone marked conversations between companies, banks, and funds at a series of events in New York

05/22/2024

Flavio Souza — Foto: Silvia Costanti/Valor

Flavio Souza — Foto: Silvia Costanti/Valor

Foreign investors are putting Brazil on hold for now. In addition to local and global macroeconomic issues, the country has its own homework to do to avoid losing this capital flow for a long time—or the money will be reallocated to emerging markets like India and Mexico. This was the overall tone, more dismayed than optimistic, of the conversations between companies, banks, and global institutional investors throughout the last week, during an extensive Brazilian agenda in New York.

“The companies are wrapping up the first-quarter earnings cycle with results in line with expectations, but on the investor side, we notice a wait-and-see attitude due to issues related to Brazil or issues beyond Brazil. Naturally, the interest rate environment in the United States is significant, as well as the recent revisions regarding the behavior of interest rates in the Brazilian market,” summarizes Flavio Souza, CEO of Itaú BBA.

The bank brought together 150 businesspeople and 500 investors for four days of debates. According to the BBA’s leader, there was a change in tone compared to last year, when there was a challenging scenario with a new government and credit events, but with a perspective of good opportunities ahead. Now, investors looking for liquid assets have shown more nervous behavior, without reallocating the capital they are withdrawing from local assets.

“There is still a lot of noise in Brazil on the fiscal side,” said Sergio Fischer, CEO of LOG, a logistics company controlled by the Menin family, after rounds of talks with foreigners. In April, the federal government included a revision of the fiscal target for 2025 in the Budget Guidelines Act, projecting a result lower than initially discussed.

For Fabio Barbosa, CEO of Natura, the transition at the Central Bank also contributes to the tension among foreign investors. Roberto Campos Neto will leave the presidency of the monetary authority at the turn of the year and, in the last meeting of the Monetary Policy Committee (COPOM), the board showed a split between directors appointed by the Lula administration and those remaining from the Bolsonaro administration, raising doubts about inflation tolerance in the next cycle.

“What disappoints me the most is seeing that Brazil is not on the map, not in the focus of investors. There is a lot of concern about the uncertainties we have, such as the fiscal issue, greater or lesser interference in the economy, what will be the trend of interest rates, and the flexibility of the Central Bank,” said Mr. Barbosa.

In his view, these issues add to the fact that Brazil is poorly positioned globally. “As interest rates in the United States are very high, the risk appetite has decreased, and Brazil today represents a risk. This disappoints me because we are better than the image that appears, better in environmental issues, economic growth. The country will grow around 2.5%, has inflation under control, institutions functioning reasonably, but that is not the perception we convey,” he said. “We convey the perception of uncertainty that some of these positive points may not be there in the future. And that makes us miss investment opportunities.”

It was precisely during the meetings promoted by Brazilian companies in the U.S. market that President Lula decided to finally replace the CEO of Petrobras, appointing Magda Chambriard, an executive with a more “expansionist” profile. The subject inevitably invaded the closed-door meetings. “Petrobras is Brazil’s largest company by market capitalization, so it is natural that it is always a focus of monitoring and attention. When there is a change in the command, and this was news all day, it becomes the subject of questions and inquiries by investors trying to understand the scenario,” said Mr. Souza from Itaú BBA. “It’s part of a broader context related to the perception of the level of government influence in the companies it participates in, the economy in general, and how this relates to fiscal, economic policy, and from the perspective of returns.”

According to him, for equity investors, this context influences more immediate behavior. However, some investors see an entry point in Brazilian stocks, as price-to-earnings multiples are below the historical average.

At Itaú, updated monetary projections now indicate the Selic policy rate closing the year at 10.25% per year. The bank still expects a window for initial public offerings in the fourth quarter but mainly counts on secondary offerings for stock market activity.

“Mexico is clearly much more active, and India is super strong as well. The country cannot stay out of the flow for too long; it has to more actively return to being a desirable place, capable of attracting foreign investors,” said Cristiano Guimarães, head of corporate and investment banking at Itaú BBA. “It is necessary to create some momentum, a perception that the market will move forward and unlock,” adds the institution’s CEO.

Mr. Souza emphasizes that strategic investors will continue to look at sectors such as energy, agriculture, and pulp and paper. The bank advised the sale of AES’s local subsidiary but does not see a trend in this case. “Infrastructure continues to attract investors; it is the market where project finance effectively works, with long-term capital for project development,” said Mr. Guimarães.

Sustainability and climate finance are also definitely on the bank’s, investors’, and companies’ long-term agenda—especially after the catastrophe in Rio Grande do Sul, which highlighted the urgency of the issue and the need to include this risk in business and public management models.

“There is more than objective evidence of climate change and its implications beyond the humanitarian issue, which is always the most relevant, but also in business. In our operation, we see this so clearly that the entire climate finance agenda of the Itaú Unibanco group, which has always been on the broader sustainability agenda, is now part of Itaú BBA’s activities because we understand that it has ceased to be a corporate citizenship agenda and has become a business agenda,” said Itaú BBA’s CEO.

One of the bank’s initiatives was a financing commitment of up to R$400 billion for sectors with a positive impact on ESG criteria by 2025. “We have already exceeded 90% and will reach the goal 18 months ahead of our ambition, so it will be updated.”

*Por Maria Luíza Filgueiras — New York

Source: Valor International

https://valorinternational.globo.com/
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